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SBI Magnum Monthly Income Plan balances the need for capital safety with inflation beating returns. The fund achieves the balance by investing around 85% of its portfolio corpus in debt and money market, and around 15% in equity market. The fund has given 12 – 14% returns to investors over the last 1 to 3 years. These are excellent returns for a conservative monthly income plan (aggressive monthly income plans invest 25 to 30% in equities). If you see the 1 year rolling returns of SBI Magnum Monthly Income Plan over the last 10 years, you will see that, except during the global financial crisis of 2008, the fund always preserved the investor’s capital (even during stock market corrections in 2011 and 2015 – 16).

The rolling returns chart of a mutual fund scheme reveals very useful characteristics of the scheme, if you observe the chart carefully. Firstly, you can see that the returns are a little volatile (like all other mutual funds, monthly income plans are subject to market risks and cannot give investors assured returns). However, you can also see that, the rolling returns are much less volatile than equity (for most periods you can see that, the returns fluctuated between 0 to 10%. The chart shows that, your capital was always preserved except during the financial crisis of 2008.

The financial crisis of 2008 was an extreme event of global liquidity crisis; events like these occur once in several decades (the financial crisis of 2008 was the worst crisis after the Great Depression of 1930s). In such crisis no asset classes (stocks, bonds or even gold) are spared.

In 2008 stock market crashed by more than 50%; gold fell around 25%. The 1 year rolling returns chart of SBI Magnum Monthly Income Plan shows that, fund value fell by less than 10% in 2008. During severe liquidity crisis events, Governments and central banks (in our case the RBI) pro-actively take fiscal or monetary measures (stimuli) to inject liquidity and restore confidence in the markets.

The rolling returns chart of SBI Magnum Monthly Income Plan shows how quickly the fund recovered all its losses. After 2008, we again had stress in capital markets several times, in 2011, 2013 and 2015 / early 2016. You can see that, even in those stressful times, as mentioned earlier, the fund was able to show resilience and preserved the investor’s capital.

Now focus your attention on the peak rolling returns. You can see that the peak rolling returns were all in double digits; in fact the maximum 1 year rolling returns (circled red) of the fund was more than 20%. This is the effect of the equity kicker; in other words, SBI Magnum Monthly Income Plan was able to capture bull market upsides to give investors higher returns than what they would get from a debt fund investment. Monthly income plans provide high degree of capital safety to investors (through high debt allocation) and on an average, over a sufficiently long investment horizon, can give investors higher income than what they can get from risk free fixed income investments (through equity allocaton).

SBI Magnum Monthly Income Plan was launched in 2001 and has around

र525 crores of assets under management (AUM). The expense ratio of the fund is 2.2%. Dinesh Ahuja and Ruchit Mehta are fund managers of this scheme. The chart below shows the annual returns of the fund over the last 5 years.You can see that, the fund was able to beat the benchmark and its peers in most years. We had seen in the 1 year rolling returns chart of SBI Magnum Monthly Income Plan, that the volatility was much lower than equity investments. The effect of low volatility can be seen in the stable NAV growth of the fund over the last 5 years (please see the chart below).